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Credit Suisse, HSBC turn positive on Singapore equities

Credit Suisse, HSBC turn positive on Singapore equities

Tuesday’s historic summit between Kim Jong-un and Donald Trump in Singapore is not the only reason the country has been in the news of late.

Beating Asian peers, the city-state's equity market has been burning red-hot this year, and private banks are sitting up and taking notice.

The benchmark Straits Times Index has returned 2.3% in US dollar terms year-to-date, led by materials, information technology and banks. This compares with the median of -1.5% for Asia Pacific markets and 0.7% for the MSCI AC Asia Pacific Index.

As such, Credit Suisse has turned positive on Singapore equities, switching the market to overweight this week on expectations that it will continue to outperform Asian equities.

‘Singapore is the “place to be” for equity investors as the market offers a blend of cyclical exposure, is a beneficiary of higher interest rates and trades at an attractive valuation,’ said Suresh Tantia, investment strategist at Credit Suisse.

‘The recent 5% pullback over the last one month has also provided an attractive entry opportunity, in our view,’ he said in an investment update.

Valuations de-rated in May as a result of the 5.4% pullback, with the market now trading at a 12-month forward price/earnings ratio of 13.3x, in line with its 10-year average.

‘In fact, Singapore is the only Southeast Asian market, which has witnessed positive earnings revisions over the past three months, and is likely to deliver 15% earnings growth in 2018,’ Tantia added.

Similarly, HSBC Private Banking is also overweight Singapore equities, backed by expectations of strong earnings and economic growth in the second half of the year.

According to its Asia head of investment strategy Fan Cheuk Wan, fund flows will likely become a supporting factor for the market as investors turn overweight Singapore stocks and increase holdings.

 ‘Institutional investors have kept down their exposure to the Singapore market and looking at the fund flow data, investors still remain slightly underweight in Singapore equity funds,’ Fan told Citywire Asia.

In terms of sectors, both banks are positive on index heavyweights, such as financials and property stocks.

‘We expect the Singapore banks to continue to benefit from lower credit costs and reducing non-performing loans risk. The normalisation of US interest rates helps net interest margins and this will help Singapore banks expand further,’ she said.

Tantia noted the 6% correction in Singapore bank stocks in May, driven by the decline in US 10-year Treasury yields to 2.93%, and according to him, it’s the right time to invest in the sector.

He believes property stocks are also attractive as current valuations have not priced in the robust demand and rising home prices.

Fan added that integrated resorts and consumer discretionary products in Singapore are well-positioned to benefit from tourist inflows as Asia’s middle class consumer base grows.

In fact, Genting Singapore has been the top net buy stock post earnings for institutional investors in May.

According to Fan, an HSBC survey of Chinese consumers found that more than 80% of the respondents were willing to pay higher prices for better products and services.

‘This will benefit consumption companies in the region, including travel-related companies and real estate investment trusts in Singapore,’ she said.

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